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Ag land market: Swenson: Per-acre values of cropland leveling out

FARGO — More than a decade of double-digit increases in cropland prices — in some cases 50 percent or more annually — may be ending in North Dakota.

As prices for corn, sugar beets and other crops have dropped, the per-acre values of cropland are leveling out, said Andrew Swenson, a North Dakota State University Extension farm management specialist.

“Unless crop prices have a significant rally, it is likely that next year’s survey will confirm that the historic 11-year run in land values, averaging an annual increase of 15 percent, is over,” Swenson said.

Similar indicators are seen for Minnesota land sales tracked by the National Agricultural Statistics Service, as average prices per acre of cropland in 2013 either dropped or saw slower increases.

In North Dakota, the cost of an acre of cropland increased 42 percent between 2012 and 2013, according to an annual survey by the North Dakota Department of Trust Lands.

But from January 2013 to January 2014, the red-hot land market cooled, as increases in land prices dropped to 8 percent.

Land values in the northern Red River Valley region actually dropped 4 percent from the year before, Swenson reported.

“It is quite possible that land values peaked in the last few months of 2013, when the financial impact of lower crop prices became more evident, especially in the Red River Valley, where two major crops, corn and sugar beets, had negative returns, on average,” Swenson said.

The Trust Lands survey is not based on actual sales, but on observations by farmers and landowners around the state, said Dwight Aakre, an Extension farm management specialist. Still, it has tracked those estimates since 1989, he said.

Aakre said the bullish land market in North Dakota is due for a break.

“That bull run had to end. There’s no way land values could continue to rise at 20, 30 percent every year,” Aakre said.

In the North Red River Valley region of North Dakota (Grand Forks, Walsh and Pembina counties), land values increased from $2,195 an acre in 2012 to $3,427 an acre in 2013, a 56 percent increase. But in January 2014, it dropped to $3,283, a 4 percent decline.

All other regions of North Dakota saw increases in land values, the Trust Lands survey found.

— In the South Red River Valley (Cass, Traill and Richland counties), the average price per acre was $3,083 in 2012, then rose to $4,180 in 2013, a 36 percent increase. In 2014, the price per acre was $4,319, a 3.3 percent increase.

— In the Southeast region (Steele, Barnes, LaMoure, Ransom, Dickey and Sargent counties), cropland sold for about $2,120 an acre in 2012 and $2,925 in 2013, a 38 percent increase. In early 2014, cropland was $3,183 per acre, up 8.8 percent.

— The largest increase in North Dakota cropland values from January 2013 to January 2014 was almost 28 percent to $1,278 per acre in the Southwest region (Golden Valley, Billings, Dunn, Mercer, Oliver, Stark, Morton, Slope, Hettinger, Grand, Bowman, Adams and Sioux counties).

Similar trends are seen in Clay County and other Minnesota counties close to Fargo-Moorhead.

— In Clay County, the average price per acre of cropland was $3,838 and $3,773, an almost 2 percent decline. The highest price per acre was $6,803 in 2013, and the lowest was $1,010, according to the sales data collected by the NASS.

— In Becker County, the average price per acre of cropland was $3,291 in 2012, dipping to $2,762 in 2013, a 16 percent drop.

— Norman County saw the biggest decline locally. In 2012, the average price per acre was $3,207, but it had dropped to $2,000 in 2013, an almost 38 percent drop.

Land sellers in Otter Tail and Wilkin counties still saw increases in cropland values in 2013.

— In Otter Tail County, cropland sold for an average of $2,600 an acre in 2012, and $2,702 an acre in 2013, an almost 4 percent increase.

— In Wilkin County, cropland sold for an average of $4,337 an acre in 2012, and $4,924 an acre in 2013, a 13.5 percent increase.

Declines in crop prices have helped put a damper on the ag land market, Swenson said.

From a survey of those enrolled in NDSU’s Farm Business Management program, Swenson said net farm income dropped more than 80 percent in the Red River Valley and 50 percent elsewhere in North Dakota.

Aakre said the cash price for corn in North Dakota was $5.81 per bushel in 2011 and $6.46 in 2012, which helped push land rents and values up. For 2013, the U.S. Department of Agriculture estimates that corn was selling nationally at $4.60 a bushel. North Dakota farmers probably got $4.30 per bushel, Aakre said.

In 2012, sugar beets were selling for $65.41 a ton nationally, Aakre said.

American Crystal Sugar announced after the harvest last fall that it expected its payout to drop to $38 a ton. That was blamed on a glut of Mexican sugar in the market and low sugar content in beets harvested in the valley.

Soybeans have held up well, Aakre said. They were $14 per bushel in 2012. USDA projects the 2013 price will be $12.60 a bushel for North Dakota.

Spring wheat was $8.19 per bushel in 2012, Aakre said. It probably will average $6.80 per bushel for 2013, he said.

Swenson said projections for 2014 crop values may give producers and bankers pause “about jumping on the land escalator.”

But if interest rates stay low and cash prices stabilize above $4 per bushel for corn, $11 for soybeans and $6.50 for wheat, it’s possible land values will have a soft landing, Swenson said.

Kevin Pifer of Pifer’s Auctioneers said his firm sold about 60,000 acres of ag land in North Dakota and Minnesota in 2013.

He says “the frenzy to buy land isn’t what it was” at the end of 2012 and early 2013.

From September to December 2013, “land was actually trading like a small cap stock,” Pifer said. “In some areas of North Dakota, it was going up $1,500 an acre. It was almost trading like a stock,” Pifer said.

He agrees that if crop prices stabilize, so will land prices. But if crop prices dip, there may be another correction in the land market.

What may help is that land is attractive to investors as a hedge against inflation. Investors now make up 30 to 40 percent of his buyers, Pifer said.

“It becomes such a strong undercurrent of financial support that will hold up these values. That’s what we’ve seen this year in our company,” Pifer said.

Helmut Schmidt was born in Germany, but grew up in the Twin Cities area, graduating from Park High School of Cottage Grove. After serving a tour in the U.S. Army, he attended the University of St. Thomas in St Paul, Minn., graduating in 1984 with a degree in journalism. He then worked at the Albert Lea (Minn.) Tribune and served as managing editor there for three years. He joined The Forum in October 1989, working as a copy editor until 2000. Since then, he has worked as a reporter on several beats, including education, Fargo city government, business and military affairs. He is currently The Forum's K-12 education reporter.